Five Steps to set your Finances on Fire: The Inherent Contradictions Between Healing and Making Money

After coaching countless health care practitioners in business model development and practice management I’ve run across five steps to handling finances. I’m not saying these are good, in fact they can be self-destructive and lead to physical and emotional burn-out. I think they are primarily rooted in the inherent conflict we all feel surrounding collecting money from those that are suffering. 

#1 We become distracted and removed from the business side of practice, we are heading towards inefficient business structures, we ignore financial planning, we disdain business planning. It’s all about patients and patient care.
#2 We don’t track the actual dollars per hour we are earning, instead focusing on adding more and more hours to “make things work”. We enable the inefficiencies of the business by working harder.
#3 Overhead goes up, our working hours go up, income goes up, but no one is tracking the relationship between these variables and as you build more and more you are making less and less per hour
#4 Eventually you run the risk of burn-out. Excess hours, low pay, high stress, lack of self-care. It all adds up and we pay the price emotionally, in our own health and the health of our relationships.
#5 We end up at the end of a long career without adequate savings or retirement. 

The financial side of running the business in a Functional Medicine practice is the least interesting, easiest to ignore and easiest to put off to deal with some other time. It’s like flossing your teeth. It’s a time consuming hassle but we know if you want to avoid gum disease you have to deal with it. Same here, financial planning, while a hassle or perhaps even unpleasant is absolutely required for a healthy practice. 

To start with understanding your financial state you need to find out approximately how many dollars an hour you are making. I find most practitioners don’t calculate all the time they are putting into work and end up with a relatively low hourly rate because of this. The equation starts with the assumption that you want your practice to generate enough profit that you can have a high quality of life, providing you time to exercise, eat well, and maintain your own health and at the same time leaving you the time you need to spend with family and friends. 

Simply take your income and subtract your expenses and all taxes you pay and divide that by the number of hours you work. For work hours we’re including direct patient care as well as administrative time to run the office and the extra hours you may spend outside of patient care on the clinical side such as reading journals or researching treatment options for a patient, answering patient emails, charting, working with your team. All the hours count equally. 

Every Functional Medicine doctor I’ve ever met has at some point faced burn-out. Long hours, lots of unpaid extra work outside of billable hours and a poor tax strategy mixed in with poor long term financial planning, including a lack of pension plans and 401(k)’s. 

To avoid this let’s look at a few made up examples of how finances in a cash pay clinic can play out. In the first scenario let’s imagine $1m of income, but $800,000 of expenses, runaway overhead and many extra hours of work due to a poor business model and lack of planning,  leaving only $200,000 of profit which drops even more after the $80,000 paid out to taxes (lack of tax planning). These are real numbers from my “$1 million clinic” that I built about 20 years ago. I was collecting $1 million a year and making around $40/hour.  Zero attention to the business, 100% focus on patient care. 

In scenario #2 imagine there is $800,000 of income, however now the percentage going to overhead is cut in half, down to 40% of collections from 80%, running a clinic with 40% in overhead is pretty good. So now there are expenses of $320,000, so the profit for the practice has gone up to $480,000. Without any retirement planning or tax strategy the taxes here would be $205,000 putting the take home at $275/hour. That’s quite a contrast with $40/hour.

If you take the next step of financial planning for your future, putting a pension plan and retirement plan into place you could allocate $150,000 of the yearly profit into tax free retirement plans and save $75,000 in taxes while building up your long term retirement savings increasing the hourly rate even more. 

High overhead crushes most of us at some point in our careers. So, keep your overhead low! Lack of retirement planning leads to lack of retirement! So, start your own pension plan and 401(k) now and you can put away pre-tax dollars, building your savings and helping to destress you in terms of financial pressures. All this with the goal being to hit your own financial freedom number, meaning you’ve saved the amount of money you feel you need for retirement. This financial freedom creates an incentive for you to work on longer range and bigger projects that may not return immediate income but will certainly help more patients in the long run. Ideas include writing a book, starting a patient education program, teaching classes locally on health and wellness, offering your services pro bono, and all the other ways we can greatly impact the health and well being of our community when we are freed up from financial worries. 

To calculate this simply take your income and subtract expenses, including taxes from it, then divide that number by the total hours you work, total hours including every aspect of your job, not just patient care hours.

I’ve run this equation with hundreds of health providers and have seen numbers as low as $27/hour. If you have significant student loans, $27/hour is just not enough to live on comfortably, this then requires you to work more hours and burn-out is in your future. 

To help the most people and relieve the most suffering put the energy required into the business aspects of running a profitable clinic. One that pays staff well and gives you financial freedom, all this allowing for the highest potential returns on the amount of healing taking place.